AbstractThe increasing industrialization of the world has led the demand of petroleum based fuels. fossile fuels are obtained from limited reserves. These finite reserves are highly concentrated in certain regions of the world. Therefore, those countries not having these resources are facing energy/foreign exchange crisis, mainly due to the import of crude petroleum. Hence, it is necessary to look for alternative fuels which can be produced from resources available locally within the country such as alcohol, biodiesel, vegetable oils etc. This work focus on the production, characterization of bio-diesel and it can be aided with the oxy-hydrogen gas which can be produced by the electrolysis process from the water. This oxy-hydrogen gas has been pre heated with the help of waste heat recovered from the automobile exhaust. The use of water powered biodiesel in conventional engines result in substantial reduction in emission of unburned hydrocarbons, carbon monoxide and particulate. Also this pre heating of the air improves the thermal efficiency and reduce the vibration of the engine.